Best practice could kill you

Breaking bad habits follows on from Freek Vermeulen’s “Business exposed”. A book with an interesting take on popular management theories and practices. Most of them do not work. Management fads spread like wildfire or like a virus but are not based on any merits.

Simplicity Sells

Think about it. It makes sense. Simplicity sells and if we could only apply hard and fast rules to get a resolution. It does not work like that. We all underestimate the complexity of an organisation and how every organisation is unique. Culture, people, management team, location, product, purpose, resources, talent, etc., etc. There are a lot of factors at play. Just because TQM or ISO works for one business, does not mean it will work for you.

Breaking bad habits

In “Breaking Bad Habits: Defy Industry Norms and Reinvigorate Your Business” he expands on that thinking. Not that dissimilar to “Black Box Thinking”. You should test your assumptions, preferably with randomised control trials, to see if something really works or you just think it works.

Your business is unique

If you survived so far, you are doing something right. You already have developed your own best practice. You should apply some of the thinking from “Principles” and figure out why they are working. Codifying the learning curve, so you understand why and how your business really works. As the baseline to see if you want to adopt the best practice of anyone else. There is no quick fix. What sounds too good to be true…..

Replication can be harmful

Organisational practices, especially those that lead to competitive advantage, are often highly complex. Attempt to replicate a best practice, firms end up transforming a complex practice into a much simpler one, and this simplified version, which is much more alluring and easier to copy, is transferred from one firm to the next, becoming less and less useful—and eventually harmful.

Long term versus short term

Causal ambiguity exists because the relationships between various parts of an organisation are complex and multifaceted, meaning that many variables are influencing the outcome in various ways, with several of them operating with delays. The long-term effects of a process are vague and abstract, whereas its short-term benefits are clear and immediate. Because learning and tacit knowledge and communication patterns are fluffy, difficult-to-grasp concepts. As are skill sets, culture, systems, and processes—and they’re all connected.

The question

The question to ask is “What might be the consequences in the long run?”

Bad best practice

There are a lot of best bad practices around. Some best practices are, in fact, inefficient. Some are stupid. Some are plain harmful. We tend to believe in a Darwinian view of management. Therefore, we believe that the most successful firms must be following the best management practices, while unsuccessful firms are not.

Why best practice

Best practice enhances the legitimacy. Companies feel obliged to adopt or continue to follow a best practice because it is an industry norm, and if they choose not to follow it, investors, customers, and competitors will frown upon it. It’s good optics. But it’s not necessarily good business. Sometimes we carry on with best bad practices because that’s the way it’s always been done in our organisations.

Bad practice as a virus

Once adopted, a bad practice is hard to identify and often refuses to quit. And, like a virus, it begins to spread to other organisations. Three key conditions, in combination, make a detrimental management practice persist

1. The practice is associated with success (as we briefly touched on above).
2. There is causal ambiguity in the industry.
3. The practice spreads more quickly than it kills.

A virus can only survive if it spreads quicker than it kills its host, that is if it hops onto other people before the original host succumbs.

That’s true for organisations, too. Just as a highly lethal virus that kills almost instantaneously cannot survive because it will die with its host before it has been able to infect anyone else, harmful practices are also never highly toxic. Harmful practices are much sneakier: they weaken a firm just a little bit, wearing it out gradually over the long run.

Endocannibalism

Anthropologists refer to the practice as endocannibalism or mortuary cannibalism, which are just fancy words that mean: someone dies, then you eat them.

The Fore people

The Fore people consumed every part of their deceased relatives, including the brain, they gradually began to develop a nerve disease, which they referred to as kuru. A progressive disease that caused severe physiological and neurological effects, kuru was deadly; it was a variant of Creutzfeldt-Jacob (or “mad cow”) disease.

This practice of the Fore people obviously is an extreme example, but also an interesting one because it puzzled anthropologists. They did not understand—at least at first—why natural selection did not weed out this clearly detrimental ritual.

Kuru for business

Business economics and management practices work in much the same way. Bad practices spread and slowly hurt our organisations just as kuru harmed the Fore people. A harmful practice can only survive if it kills slowly.

Simplicity Sells

Ease of diffusion can thus come from the practice itself: it has to be simple enough to be imitated swiftly. A harmful practice is seldom complex and difficult to learn; it’s the simple practices you have to look out for.

Ten rules

The Ten Commandments for identifying and eliminating bad habits are:

1. Cut out the benchmarking.
2. Reverse benchmark instead.
3. Experiment if you can (but make sure to do it well).
4. Monitor entrants and companies in distress.
5. Ask insiders for concerns.
6. Ask outsiders for suspicions.
7. Create bundles of practices.
8. Aim for a chunk of the market.
9. Just stop it.
10. Watch out for “That’s the way we do things around here.”

Efficiency can kill

Organisations spend a lot of time and effort building, improving, and extrapolating value from a particular competitive advantage. This leads their processes and systems to become more efficient and more reliable.

Death by routine

As far as short-term profits are concerned, these efforts to further enhance and exploit one’s advantage are a good thing. But research has indicated that, over time, as firms concentrate fully on getting better at the one thing they’re already good at, they are less inclined to pursue new sources of value and competitive advantage. To put it bluntly, these organisations become deadened by routine. One way to prevent inertia from building up is to restructure your organisation on an ongoing basis.

Embrace change

You need to embrace change for change’s sake. You should change your organisations regularly and repeatedly, even if there isn’t a pressing reason to do so. A company needs to routinely shake itself up, regardless of the competitive landscape.

Change for change sake

Changing for change’s sake forces companies to be more proactive. Don’t wait for trouble and decline, but make proactive changes to your modus operandi. Make your life difficult. Deliberately include challenging products, customers, or markets in your portfolio of activities; they can offer a wonderful source of learning.

What is your rally car?

Various car companies, for example, have rally racing teams. Rally racing is a form of motorsport that, unlike NASCAR or Formula One, takes place on open roads that are often unpaved. Car companies such as Ford, Subaru, and Mercedes partake in rally races not only to increase their brand awareness or profits but because the races provide challenging situations that aren’t present in normal road conditions. In other words, they present opportunities for innovation. So whenever you find yourself in a similar conundrum, realise that there might be big benefits to making your life difficult every now and then. Vermeulen urges you to ask yourself, what is the rally car in your portfolio?

Balance

Balance exploration with exploitation. Get organised so that you strike a balance—and keep carefully monitoring this balance—between activities that further enhance and exploit your current competitive advantage and those that foster new ones. Be varied and selective. By all means, create an internal environment where a thousand flowers can blossom, but make sure you also have some stringent processes in place that systematically kill off 999 of them.

Change is capability

By adopting a pro-change mindset, even when change doesn’t seem immediately advantageous, your organisation can prevent these problems from taking hold and, in the process, become more adaptive and flexible. Change Is a capability

Codify

And then go back to the beginning of your own best practice. Codify the learning curve. Apply “Principles” Explicitly discuss the learnings from the experiment, and make sure to translate them into concrete follow-up procedures, technologies, or models.

Antifragile

An organisation that builds this into its system will be much less susceptible to developing bad practices, much less likely to stick with antiquated habits and routines when they are no longer ideal. Taking on challenging cases triggers renewal, innovation, and simply better ways of doing things.

There is a test

• What percentage of your company’s revenues is from products fewer than three years old?
• What percentage of their time employees can spend freely, for instance, pursuing a pet project they believe in, but that is not part of their formal task description?
• How easy is it in your firm to get a $20,000 budget approved?
• How easy is it in your firm to get project approval without numbers, such as a payback time or net present value calculation?

Which brings us to innovation and variation

There is a lot of advice on how to increase variation, and lots of firms follow it: promote pluralism and diversity, let people think outside the box, generate ideas, and so on. In other words, let a thousand flowers bloom. However, that is only half the story. You also need to be selective. In other words, you need to let 999 of those flowers die, which is something a lot of companies struggle with.

Be selective

In the absence of reliable numbers, you have to rely on something else. Objectivize the process. Companies that successfully manage the selection of their innovation systems incorporate a multitude of selection steps. At each step, both investment and information go up, while the variety of initiatives is reduced.

Give strategic intent

Recommendations for innovation often proclaim that you need to “think outside of the box,” and “get out of your comfort zone.” However, in studying the innovation processes of many high-tech companies, they found that people need some sort of a box to channel their creativity, in the form of a clear strategic intent.

This description of a company’s general strategic direction should not be overly narrow, in which case it stifles creative new ideas. But people need a general direction to provide boundary conditions between which they can innovate.

Focus

You also need to focus. Selection happens at every company. But too few think about and organise selection deliberately and systematically, with a clear strategy in mind. They just let it happen. Sometimes this may work, but a more systematic approach should increase the odds of true innovation happening within a firm.

Strategy follows innovation

Most of the innovations emerging from such a system will be incremental yet nice additions to your portfolio. Some could be big and might end up generating a significant new revenue stream for your firm. One or two, however, might end up changing the entire strategic direction of your company

The advice

• Enable selection to happen. Resist the temptation to pick and choose yourself. Your responsibility is to design the system.
• Tap into the wisdom of your crowd. Use the knowledge of many employees. Do not rely on the opinions of individuals to select among proposals.
• Objectivize the process. Design decision rules before needing to make concrete choices. Quantify them if you can.
• Let the evidence match the investment. Do not insist on numbers (e.g., market projections, payback time) too early in the process. Systematically gather evidence that aids decisions later in the process.
• Give people a box for channelling creativity. Create clear boundaries that individuals can innovate between. Don’t make them too narrow.

Other books

Again very close to the conclusions of “Black box thinking”. If this is of interest, I suggest you also read “The day after tomorrow” by Peter Hinssen. Another Dutchman(ish).